In this paper I extend and test the hypothesis of demographic separability applied to local government expenditure. I follow the work of Deaton, Ruiz-Castillo and Thomas (1989). The demographic separability hypothesis for local government expenditure implies that changes in the transfers received by local government and changes in the demographic structure of the population will have similar effects upon the provision of local public goods. Finally, I test the hypothesis using a panel data set of the U.S. economy for the period 1980-1987.

Keywords: goverment budget, demographics, demographic separability.